Question

Find the present valyes of these ordinary annulies. Discounting occurs once a yeac. Da not round intermediate calculations. Pound vour answers to the nearest cent.

a. $900 per year for 14 years at 6%
b, $450 per year for 7 vears at 3%.
c. $800per year for 7 years at 0%

Answer 1

The question concerns calculating present value of ordinary annuities in finance mathematics. An example provided involves a $3,000 two-year bond with an 8% interest rate, which would have a present value of $3,000 using an 8% discount rate.

Step-by-step explanation:

The student's question relates to present value calculations of ordinary annuities, which is a topic in the field of finance mathematics. To find the present value, we use a formula that discounts each payment in the annuity by dividing by (1+r)^n, where r is the discount rate and n is the number of periods until the payment is received.

Example Calculation:

For a two-year bond issued for $3,000 with an 8% interest rate, the present value calculation at an 8% discount rate is as follows:

• First year interest payment PV: $240/(1+0.08)1 = $222.22
• Second year total payment PV: $3,240/(1+0.08)2 = $2,777.78
• Total Present Value: $2,777.78 + $222.22 = $3,000.00

If the discount rate rises to 11%, the calculations would adjust accordingly, yielding different present values.